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U.S. Economy Contracts in Fourth Quarter

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For the past four years US economy has been shrinking an aspect that has put a burden on the government. The strength of consumer spending has decreased. One of the indicators of economic growth in a country includes gross domestic product. The gross domestic product went down by 0.1% by the fourth year. One of the main causes of this drop is reduction in the overall government spending. In addition, businesses reducing their stored goods was another aspect that had an adverse effect on the country’s economy. Lastly, the level of export, which is also a major indicator of economic growth, declined with import rates increasing. Nevertheless, private domestic economy such as housing and consumer spending as well as business equipment and software remained rather strong (Mitchel).

In addition, the political conflict that is currently observed concerning country’s fiscal policy has a negative impact on the overall US economy. Very few people in the USA receive income from salary bonuses and capital gains. These are mainly high income earners and wealthy people. The majority of households have lost some part of their wealth and assets, including homes; such occurrences have been aggravated by the great recession (Mitchel).

Another microeconomic issue that has had a major effect on the economy is the housing issue. The housing sector has been holding back the economy of the United States. Currently, the sector is stabilizing with the sector recording a 15.3% increase. In addition, other drivers of economy, such as machinery and computer technologies, have indicated a substantial growth of up to 12.4 per cent (Mitchel).

Another aspect that has led to US economy shrinking is failed hopes of other countries, which were hoping that the policies that were set could go against the economic gravity and revitalize their economies. Some of these economies are in Europe and the majority of them experience the state of dip recession currently. Due to the reduced growth in these countries, US exports to these regions shrank either – a factor that had devastating impacts on the economy (Mitchel).

One of the major boosts that are having a positive impact on the economy is increased consumer spending. Currently, the rate of spending is said to have increased by 2.2%. Customers mainly spend on durable goods – an aspect that has increased the country’s revenue. This has been driven by increased certainty of consumers, especially now that the housing sector and other parts of the economy have stabilized (Mitchel).

Investment by private partners and companies has increased mainly in software and equipment sectors. The projection of this growth is calculated to be approximately 8.4 percent. Some of these companies and investors have pulled out as they were concerned over fiscal cliff dispute which was expected to arise in Washington (Mitchel).

Although other economic factors have been affecting US economy, government spending has been the major cause of the slow growth of the economy. Government spending, especially in military, has been having a major impact on other ventures. Government cut on military spending by 22% is said to have given the green light towards the stabilization of the economy. Some of the money that was directed towards the military sector can now be channeled towards other important ventures, which are likely to boost the country’s economy. This will be achieved through job creation and improvement of the basic infrastructure. Therefore, for the economy of the United States to grow with a remarkable margin, both internal and external spending must be handled cautiously (Mitchel).